HMRC SDLT: SDLTM30030 – Introduction of the 5 percent rate for residential property
Introduction of the 5 Percent Rate for Residential Property
This section of the HMRC internal manual provides an overview of the introduction of the 5 percent rate for residential property. It outlines the principles and concepts related to this tax rate.
- Explains the rationale behind the 5 percent rate implementation.
- Details the eligibility criteria for properties to qualify for this rate.
- Describes the calculation method for applying the 5 percent rate.
- Provides guidance on compliance and reporting requirements.
Read the original guidance here:
HMRC SDLT: SDLTM30030 – Introduction of the 5 percent rate for residential property
SDLTM30030 – Introduction of the 5 percent rate for residential property
The 5 percent rate for Stamp Duty Land Tax (SDLT) applies to property transactions where the effective date is on or after 6 April 2011. This addition can be found in Table A of S55(2)/FA03. If the property transaction is part of a contract that was signed before 25 March 2010 or was significantly completed before 6 April 2011, then the lower 4 percent rate applies instead.
Understanding Residential Property under SDLT
The statutory definition of residential property for SDLT is outlined in FA03/S116. According to this section, residential property includes the following:
- A building or part of a building that, at the time of the transaction, is:
- Used as a dwelling,
- Suitable to be used as a dwelling, or
- Under construction or being adapted for use as a dwelling.
- Land that is part of the garden or grounds of such a building, including any structures located on that land.
- An interest in or a right over land that benefits a building or the land associated with it.
What Counts as Mixed Use?
In general, if a room or area in a residential property is used as an office, it does not make the entire property mixed use. This is because the room is still suitably usable as a dwelling. Here are some relevant examples:
- An indoor swimming pool, gym, or similar feature does not change the property’s residential status, as it enhances the overall enjoyment of the home.
- A garage located in a separate block remains classified as residential, provided it supports the enjoyment of the main residence.
In these scenarios, the 5 percent rate applies to the chargeable consideration if it exceeds £1 million.
Specific Cases of Residential Accommodation
According to FA03/S116(2), the following types of buildings are classified as residential property:
- Residential accommodation for school pupils (refer to SDLTM29957 for details),
- Residential accommodation for students, excluding halls of residence (again see SDLTM29957),
- Residential accommodation for members of the armed forces,
- Institutions where at least 90% of residents use it as their main home, as long as it is not excluded by FA03/S116(3).
If a building fits any of these definitions, it is recognised as residential property, including any associated gardens or rights connected to it.
Exceptions to the Residential Definition
It’s important to note that if six or more separate dwellings are involved in a single transaction, whether through transferring a major interest or granting a lease, those dwellings do not qualify as residential property under FA03/S116(7).
Understanding ‘Garden or Grounds’
For further guidance on what constitutes ‘garden or grounds’, refer to SDLTM00440 through to SDLTM00480.
Single Land Transactions and SDLT Tables
A single land transaction is classified as either falling under Table A or Table B for SDLT purposes. It is essential to understand that there is no division between these two tables for a single transaction.
This means that if a transaction falls under Table A, which is for residential properties including the applicable 5 percent rate, it will not be split or adjusted according to Table B conditions.
To summarize the implications of the 5 percent rate: it is crucial for those engaging in transactions over £1 million to be aware of the classification of the property and its usage. This classification influences the applicable rate and can determine the overall tax burden.
For more details or specific inquiries, please refer to the relevant sections of the SDLT guidance or consult a professional advisor.
Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM30030 – Introduction of the 5 percent rate for residential property
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